Ask the Readers: What Can I Do About My Student Loans?

I do my best to cover a variety of topics here at Get Rich Slowly. Personal finance is a v-a-s-t topic, and there's a lot of specialized knowledge. But there's no question I have blind spots. Because Kris and I have no kids, I don't write much about children and money. Student loans are another blind spot for me.

Still, I know a lot of GRS readers have questions about student loans. You folks e-mail me all the time with questions I can't answer. But I finally realized that instead of ignoring your queries, I should put a few of them out for reader comment.

For example, Megan recently wrote looking for advice on coping with student-loan debt. Here's her story:

I got my degree from a small private university in Wisconsin, a school that I loved, but that in the end cost me $55,000 in student loans. That total (as I just calculated) is up to $63,630(!) because of interest since I graduated in 2008.

After taxes, I only make $1280 a month, and my loan payments total about $637 each month — almost 50% of my income! I can make the payments no problem, but it leaves very little money left over for savings, retirement, and even just fun money. A second job isn't very feasible since I'm in the military and I can get (and have been) called into work at a moment's notice.

Do you have any tips or advice on what I can do about my loan payments? Right now, the majority of my loans are on ten-year repayment plans, which I like since I don't want to be in debt forever. Consolidation would lower my payment, but nearly triple the interest I'll have to pay over the years, and would also increase my payment plan to 30 years. (I'd be 54 by the time I'd pay them off!)

Is there any other way to get through this that I just don't know about?

Again, I know very little about the ins-and-outs of student loans. Based on the information Megan provided, though, I agree that consolidating the loans probably isn't a good idea. I'd rather keep the ten-year term. (If she's disciplined, though, Megan could consolidate and then opt to make accelerated payments on her loans, much as Kris and I chose to do with our mortgage.)

In either case, part of the problem will fade with time. Some of this is a function of time. Megan will eventually take higher-paying jobs, and as her income increases, she'll be better able to handle her student loans. The $637 monthly payment that seems like a stretch on a $1280 monthly income will seem very manageable on $3000 a month or $5000 a month.

Until then, however, it's vital that she keep her other expenses in check. She should do what she can to avoid the “lifestyle inflation” that often comes with an increased salary. Instead of spending her raises, she should be especially diligent about using them to pay off the student loans, and to save for retirement.

Because I have no experience with student loands, I don't have any specific advice for Megan — just these general thoughts. Do you have advice for Megan? Is there anything she can do to decrease the drag her student loans place on her budget until she's able to earn more money? Are there any other student-loan tips or tricks you can share?

In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.

Definitely check out the College Cost Reduction & Access Act; if you find work in a non-profit, state, local or federal government, or most health fields yo can qualify for forgiveness after 10 years of repayment. You may also qualify for the Income based repayment plan which will lower your monthly payments to a manageable amount until your 10 years pass. I currently have $40,000 in loans that I had my monthly payment reduced to $175 given my family size and income. This will still count towards my 10 years since I work for a state government. All you have to do is consolidate all your loans into the Direct Loan program and request the IBR plan. It is a wonderful program that is designed to reward those with degrees that serve humanity so to speak.

Worry about the interest rate, not the amount of total interest you will pay over the life of the student loans. 50% of your income is a serious cash flow issue – if your interest rate will decrease or stay the same while consolidating and extending the term, it is almost certainly the right idea. If you have more money to pay off principal later, you will have the flexibility to do so.

Megan needs to talk to her lender. For at least a little while, they should be able to adjust her payment plan so that it’s income sensitive. This might mean paying interest only for a while, or interest and a small part of the balance.

If she does this, she still has the option of sending in additional payments to pay down the principle. It just gives her the option of paying less for a few months so she can build up her savings.

Make payments online as soon as you get paid. This shaves off a couple months of payments because the sooner you throw money at the loan, the less time interest has to accrue.

Also, if you are planning to stay in the military for 10+ years to come, some student loans like perkins offer have generous forgiveness programs. Google search military student loan forgiveness and see what you find.

Unless your loans are private loans you can get on an income-based repayment plan and it will seriously reduce your monthly payment. You can find out more about the income-based repayment plan at ibrinfo.org.

If Megan is currently taking in $1280 a month I would assume she is still in tech school and has been in the military for less than a year. I would also assume as she has graduated college that she is or will be an officer soon which comes with higher pay. Based on these assumptions I would tell her to sit tight and utilize what the military has to offer like the free gym or taking a class at the community college for free. I was enlisted in the Air Force for one term and lived in a dorm at first and then moved to an apartment in town. I ate in the chow hall, worked out religiously, and proactively tried not to spend any money for the first two years. Those were very formative years for me but once I got past the car debt and more importantly developled frugal living out of necessity those savings habits have propelled me to a new level of confidence. I think it is important to be reasonable enough for people to understand their situations and figure out a way to live beneath their means and use sites like GRS for motivation. Once you get ahead of the debt curve it is all upside. Good Luck Megan –

I’m in a similar situation, though I earn a little more than double what Megan makes. I can make all my loan payments, pay all my other expenses, and live pretty well, but I just want to get rid of these loans. I’m working on a debt snowball but it can be a little disheartening, especially because I’m hoping to quit my job in a year or so from now and have my own business up and running. The student loans just keep hanging above my head, though.

Luckily, if your loans are serviced through the Department of Ed you can defer at any time for unemployment or hardship. So as long as you stay in contact with them, it’s never a problem. That interest keeps building, though!

She probably has two types of student loans: private loans and federal loans.

Consolidating her federal loans will not do any good, because when consolidating, the government takes the weighted average of each individual loan, and uses it to calculate the new interest rate. However, a law was recently passed (http://www.finaid.org/loans/publicservice.phtml) that states that if you work in public service, your Federal loans can be forgiven after ten years of on time payments.

We don’t know if she plans on making a career in the military, but if she does plan on that, she can put her Federal loans on a interest only payment plan (for the time being), and put as much of the $637 as she can on the private loans, to knock them down as much as possible. It doesn’t matter that she’s only paying interest on the Federal loans — they’ll be forgiven eventually.

What field are you in to get that salary amount? The way I calculated it was that if you are getting $1280 for a month and working 40 hours a week that roughly works out to be a little above minimum wage. Unless you have a liberal arts degree, there has to be someway of advancing your salary by moving up in the military.

We need more info. Why does she make so little? What does the future hold for her?

If she thinks her income will drastically increase soon, sure, sit tight. Otherwise do federal direct consolidation (assuming they’re eligible loans), get on an income based repayment plan, and apply to have the loans forgiven under the public service forgiveness act (after 10 years of income based repayments).

The federal government started a direct lending program last year. Now all student loans are through the dept of education. There is a one time option to consolidate all of your student loans with the government. From what I read there are both standard and income based repayment options. Visit the department of education website and search for direct lending. Any college financial aid website or professional should have the information as well.

I know she said she can’t do a second job, but what if it’s something like lawn care, or taking care of the elderly, or dog-walking? Even if she only made an extra $20/week doing something – that can go a long way to helping her repay her loans.

I would not even consider consolidating. I would spend time accessing any program that may be available to me, starting with the military. If there is not any program that can work with your loan situation, I would suggest finding another income stream, even if it is selling things on ebay or whatever. Without more income, this payment is going to be a problem.

Student loans are terrible! I’m up to 108,000. yikes. look into the public service forgiveness loan. i chose to consolidate because it made my monthly payments more manageable, and the remainder of my loans are forgiven after 10 years. the one drawback is that the government has changed the formula for calculating interest on consolidated loans, and they’re really horrible.

1. On my Federal Student Loan, the government reduced my interest rate by 1/4 percent because I have the payment automaticaly debited each month. 1/4 percent savings on the interest helps out; espcially when you owe so much.

2. I respect you for wanting to pay your loans back in 10 years, but putting 50% of your income toward student loans is not realistic long term. That will not give you enough money to support yourself in a reasonable manner. The Federal Government lets you extend the term of your payments(20 years, 30 years, etc.). I suggest that you do this, but then pay as much extra every month as possible.

3. You should be looking for a new job that pays more money. Even with frugal living, you need to make more money to wipe out your debt wihtin a reasonable time.

1. The federal government lowered the interest rate on my student loans by 1/4 percent when I signed up for direct deposit. 1/4 percent on $63,000 add up.

2. I suggest extending the payment schedule past 10 years. I respect you for wanting to get rid of your debt, but paying 1/2 your income to student loans is not sustainable. If you extend the payment schedule, you can (and should) pay extra every month what you can.

3. You need to find a new job. It is much too difficult getting out of this type of debt with your salary.

I think it’s incorrect to assume that anyone’s salary will necessarily increase as time goes on. Maybe that’s the way things used to be (in, say, the 1950s), but I’m just not sure it’s true anymore.

She should consolidate and take a 30-year repayment term. The longer repayment term will significantly lower the per-month payments, which is what’s killing her right now. If, in the future, she can make extra payments, great. But if you’re getting clobbered by the monthly payments and there’s an obvious fix, you have to take it.

Which is more at issue right now, the extra amount in interest a 30-year repayment will rack up, or the inability to make your monthly payments (or, put another way, the reduced standard of living that comes with making those payments)?

@Tim B: If she’s enlisted, her room and board may be partially or fully covered already. If she’s commissioned, she receives an allowance for those things. (I think. It’s been a while since I reviewed the military pay structure.) The point being that her take home pay may seem small but that’s because some things are already taken care of by the military. (Which, incidently, is part of the reason why the DoD has such a large budget (part, not all). If you think about the number of people in the military and how much they have access to in terms of programs and other benefits, the DoD budget, which is huge, starts to make a little more sense. Sorry about the tangent.)
@saad: While it may be true that borrowing will become “more expensive to everyone later”, that is the lender’s risk not yours. Why they would put themselves in that position is somewhat beyond me. However, if you’re making interest only payments or even paying some of the principal, by the time your loans are forgiven, you’ll have paid almost, if not all, of the principal amount. So in terms of actual dollars, the lender probably hasn’t lost much except a portion of the profit.

Thanks for jumping into the student loan topic!! A tip for J.D. – when people ask about school loans, finding out the type of borrower (private or federal) is key :D

One way to reduce federal loan payments easily, without even having to qualify, is a GRADUATED PAYMENT PLAN. I’m not sure if all lenders are required to offer this option. For a federal loan, you can SWITCH between FIXED payments and GRADUATED payment plans easily, without penalty, as much as you need to. In a GRADUATED plan, you simply pay less at the beginning and a higher amount by the time you get to year 10, and you still need to pay it off in 10 years.

While Megan will pay more in interest this way, she will not have to extend the life of her loan, and it should be much more manageable in the near term. She can also switch to a FIXED payment plan once her income increases.

Also key – if it’s a federal loan, as her income increases, she will not be penalized by paying more on the PRINCIPLE of the loan. When paying above the monthly payment, submit the payment and indicate it is for PRINCIPLE. That way, the interest you pay on the life of the loan will decrease because the principle, upon which the interest is determined, will decrease.

Agree that we need more information about what she’s doing in the military. Is she an officer or enlisted or officer candidate, as this will make quite a difference in anticipated pay in the next couple of years.

While I agree with the poster who noted that 50% of one’s [take-home] income is a significant cash flow issue, it’s also important to remember that in this young lady’s case, her housing is being provided, either on base or with a tax-free allowance for off-base housing. So it’s not apples-to-apples with what you might be thinking.

Additionally, while I applaud her efforts to save for retirement so early and with such limited means, I would like to offer some advice to ensure that she first only save in a Roth plan. Either a ROTH IRA, or a ROTH TSP, which I understand is either available now or in the works. Never make perfect the enemy of the good, for sure, but this was a small mistake that I made while I was in the Service. Her effective marginal tax rate will never again be this low.

“if lenders can’t recover the principal it’ll just make borrowing more expensive for everyone later.”

Which of course, will just make colleges cheaper, so it’s all a wash. They charge what the market will bear, when borrowing became cheaper and more accessible, tuitions skyrocketed. There’s no other way to explain it; it’s not as if professors are being paid more.

Yes, yes, talk to the lender. There are almost always different repayment plans. Will it stretch out the amount of time you’re paying and possibly mean you pay more? Yeah, probably, but right now, it’s your best option for keeping your head above water.

A couple things – it also depends on what field Megan is working in. And it also depends on what kind of loans that she has – the best ones are typically Staffords and Perkins because they apply for loan forgiveness if she is in particular fields such as education, non-profit, etc.

I recommend talking to the lender to see if they offer any other options.

I too went to a small private school and racked up just over $60,000 in student loans (no parent help). This most likely means that the larger, higher interest loans are NOT federal, but private loans. With the private loans you cannot do Income Based Repayment. Being in the same situation, I have dropped my federal (low interest rate) loans to a interest only payment for up to 2 years. This dropped my payments by about $100. I then started saving that $100, and any extra I can, into a Student Loan Emergency fund that I will grow to 6 months worth of student loan payments. After that I will go back to paying more then interest on the federal loans and begin paying extra on all loans (when feasible). But knowing I have the emergency fund takes a lot of the worry out of your mind and can give you freedom to even do things like start a new career or travel. Good Luck!

OK, this won’t be popular. It’s a LOAN. A loan she took out on purpose & she is reaping the benefits of. The way to deal with it is to be aware that she made a choice to buy her education with her future. Now is the future and she has positive memories and skills. Now she PAYS for it.

Either extend the term (through consolidation or income sensitive payments as listed above) and ultimately pay more OR deal w/ $643 in expendable income and knock the loan out in ten years. Those are the options.

Megan, I can say from experience that the ten years after college go by very quickly. Your income will go up over time, especially in the military. Also you have many peers who are in similar situations, so find some that also value frugality and hang tight.

Every time you see the loan payment go out, take a moment to appreciate the education and experience you bought.

Another thing to consider is that lenders will frequently reduce your interest rate for paying on time for a certain amount of time. I think mine was 6 months?

Megan, you might try looking into online passive income — JD’s new blog for instance, but something that requires less regular input would be better for you I imagine. Check out my favorite blog: smartpassiveincome for inspiration/advice.

While it goes against the common advice on this website, I don’t think consolidation should be ignored as an option… if she qualifies for direct consolidation through the Department of Ed anyway. Check out loanconsolidation.ed.gov. It will make your payments much more manageable, and you can make accelerated payments as you start earning more income.

That site also has links about income based repyament, so it’s a good resource regardless of how you choose to tackle this problem.

1. If they are federal loans, you can ask for a deferrment of payment for 2 years. You tell them you are planning on going to graduate school. (Whether you do or not is beside the point), BUT if I remember correctly, it freezes the principal no more interest. And you can still make payments to lower whats there.

2. Actually go back to school. Enroll online somewhere, same thing. No interest is charged on the principal while you are in school and you can still make payments.

3. A long time ago…payments in total could not exceed 25% of your income. You have to file paperwork with you lender…talk to them about it.

Depending on your career (non-profit, government), remaining debt is forgiven after 10 years – the military appears to be one of the careers where your loans are forgiven after 10 years. The website above has a calculator to help you see if this is worth it. You will probably have to switch your loan from your original lenders to a Direct Federal Loan, first – most loans are eligible, but not all.

I did this (I work for a nonprofit), and, while it was a pain to get it all set up, it was the best decision I ever made. Now I can focus on paying off other debt and saving for retirement.

Take heart. It is hard now, but you have the tools to make it easier as time goes on.

I heard a statistic that someone in the military is promoted on average 4 times in their first few years of service. Assuming that comes with additional compensation, bank the extra and use it to pay down.

It might be wise to set up a consultation with a reputable fee-only financial planner who might be able to give you specific info about the student loans.

Think about what you can do within your schedule that might help you earn a little extra money that can be put on the loans. No one mentioned babysitting as an option.

Create a system to syphon off extra money to pay down debt. My sister saves all her job expense reimbursement money in a new car fund. Some people save all the $5 bills they receive in change, or all the coins. Do whatever works for you, and be disciplined in using that money to snowball debt.

on a different note, this just shows how ridiculous college costs are today. $55,000 is a ton of money, and college graduates are making minimum wage. my niece is racking up $80,000 at her college and she will graduate and become a social worker. she won’t be making that much more than a person who didn’t go to college and is a clerk or office manager. what’s the point? $80,000 is a nice down payment on a house.

I used to work helping people with their FAFSA applications. There’s only a few ways to get out of a student loan or get it reduced. You can a) become a teacher (conditions apply to time spent and type of teaching), b) become permanently disabled with no chance of rejoining the workforce or c) die. Bankruptcy won’t get rid of student loans. Since you’re in the military you might be able to reduce your loan as well, but memory is hazy there.

You can defer payments for up to two years, but interest will accumulate in the meantime, and if you’ve already deferred once, you don’t get that time back (ie. if you deferred for six months, then started paying, you can only defer up to 18 months if you need to defer again later).

However, in your case you would be best to restructure the loan out to 30 years to lower the existing payment. Yes, that means having to pay more in the long run, but it’ll also let you live now. And so long as you keep paying on time, it shouldn’t be a problem to restructure again and shorten the loan when you have more money to put towards it. Also make sure to check if there are any benefits in relation to your military service on forgiving some of the debt. Like I said, my memory is hazy on who is eligible for debt forgiveness, but it’s worth looking into.

I think it really depends on where your future lies. I kept up high student loan payments for the first 8 years, until I needed to readjust because of kids and all of that expense. The gvt recently passed the 10-year loan forgiveness plan for fed. loans if you work in certain lower-paying gvt. jobs. My job qualifies, but b/c it’s not retroactive, by the time I finish paying 10 more years, I won’t have much loans left. (In other words, I would have been much better off by reducing my loan payments and consolidating from the get-go) If you plan on being in a career which qualifies for loan forgiveness and you’ll be doing that for 10 years, reduce your monthly payments by consolidating (if you can) and squirrel away the extra money. If not, I’d pay the higher amount as long as you can, unless you are planning on having kids and/or a house.

I would strongly advice against the interest only type modification or a very low payment based on your current salary. Those loan structures balloon and the payments then go even higher. I have a friends who chose this option and had to take a job she hates simply to try to pay for the even larger loan payments now. We all think our future salary will be higher, but in my state, we’ve not had raises in 4 years and will likely be without raises until the economy gets fully back on its feet.

This has nothing to do with the loans themselves, but have you tried adjusting your withholding to get more cash in your paycheck? At that level of income, your income tax should be minimal since you’re in the 10% bracket.

I’d also look at getting a new job and selling anything you can to make some extra money and get that debt paid.

I think the problem is the income is too low ($1,280 is $8 an hour, $.75 above minimum wage), not that the payment is too high.

You may want to consider a part time job — I know that the military can call you up and you’ll have to respond at a moments notice — but if you inform your boss of that fact during the hiring process and (s)he’s alright with it, then there is no problem.

Consider if there is something you can freelance or do from home? This would allow you to set your own schedule for your second job, and if you have to report to the military, you can. What field is the degree in? What talents do you have? What do you do in the military? Are any of them a service you can market when your “off hours” from the military?

You always have the option, being in the military, to follow AC’s (#1) advice and volunteer for deployment. One of my friends in the Army reserves was able to make serious savings while deployed in Afghanistan the first time doing construction; and he’s currently there with a sapper team (much more dangerous), and because he has no real expenses almost all of his pay is going into savings.

Talking to the lender and revising your current repayment plan might be a good idea in the short term; but when you have the opportunity (wage), return to being as intense about the student loan as you would consumer debt.

Consolidation dropped my interest rates as well as my monthly payment – technically I’ve got 20 more years to pay my remaining loans, but if I pay them off in 4 years (which I will at my current rate of payment), then I’ll have paid less interest than I would have if I hadn’t consolidated.

Also, whenever I receive a windfall (money for Christmas, tax refund, etc.) I spend a little on myself and then throw the rest of the money at the student loans.

If your loan is from Sallie Mae you can do a three tiered 10yr payoff. Where you pay less to start, which covers the interest and then it steps up a few years later. I did this and was able to pay a bit more at the start which shaved off years plus allowed me to survive when I needed help most after college

Someone making $1280 a month is probably doing something that she loves, like working for the Sierra Club. But in my opinion, she cannot afford it. Life is about compromises, and at this stage in her life, she is going to have to “sell out” and return to this dream later when she can actually afford it. The choice of such an expensive, private education has consequences and the responsible thing to do would be to live up to them.

I would say that if you can handle the payments now, to continue with the 10 year repayment. While in the military, I’m sure that you aren’t paying much in living expenses. The sooner you can get the student loan albatross off your back, the sooner you can get on with your life.

Also, I would delay any retirement savings and put every penny I had toward your loans. I’m 42 and still paying off student loans and it’s not fun.

The answer depends in large part upon what type of student loans you are dealing with.

If these are federal student loans, they are eligible for Income Based Repayment. Better yet, since you are in the military (a public service job), after 10 years of qualifying payments on the income based plan while working full-time in public service, the remaining balance due may be eligible for forgiveness. The catch: this forgiveness is only available on Federal Direct student loans, so if the loans are with a different lender, you should absolutely consolidate them into the Federal Direct Loan program to make them eligible.

Given the amount of debt you have, I think it’s likely there are also some private loans in your mix. My best advice: work out your lowest payment possible (probably income based) on the federal loans and pay as much as you can stand on the private loans until they are paid in full.

The best thing to do is to extend your loan period to get the minumum payments down to a more resonable level. As long as you have the intention of paying them off before 20 or 30 years, you should have no problem. You definitely need a higher paying job, especially since you have a degree.

Depending on how disciplined Megan is about money, one option would be to see if her loan company offers a military service deferment, which would allow her to temporarily stop making payments, however, she wouldn’t accrue interest on the loan during the deferment period. Double-check that that is true with the lender, but in my experience this is true of deferments. Forebearances do, however, accrue interest, so make sure you know which one you are getting.

Megan doesn’t mention if she has any other debt. Since student loan debt is looked upon as good debt by creditors, I’d then use the money to pay off any other debts. If she doesn’t have other debts, she could put most of what she’s currently paying on her student loan into a savings account or CDs, something that would earn her some interest. This would allow her to build an emergency fund (which I’m assuming she doesn’t have since she says she has no money for savings) and also leave a little fun money every month. It would also give her some breathing room when her deferment ends if she’s not making more money than she is now, or if she’s left the service and is looking for a job.

As much as Megan understandably wants to pay this debt off now, I’d say if she can do the military deferment to get herself in a better financial position then she should do it. Unless she plans to be career military, she doesn’t know what her job situation might be like in a few years time, and she doesn’t want to have no savings and be forced to put her loans on forebearance (where they will accrue interest) because she can’t make the payments.

A lot of folks have great advice about programs Megan can look into, but don’t give up on the other side of the equasion. J A and Meg make great points – get more money. Many employers will understand you are in the military – and many may respect that and want to hire you more. A retired military officer running a local shop may prefer Megan over just another applicant. And part time work is often flexible enough to find replacements if you get deployed. So don’t give up on a part-time gig. You may also check with your contacts within the military – they may have part-time job assistance programs.

But a j-o-b is not the only choice. Like Meg said – lawn care, dog walking or anything you can do in your spare time could earn a few extra bucks per week – and pour those into your loans (whether you consolidate or not). Don’t be afraid to get creative.

And you can sell stuff. Sell whatever you don’t use or need and attack the debt. That could help a lot. When you’re out of debt you can buy new “stuff.”

I have over $87,000 in loans myself and just revealed my plan to pay them off by the end of 2011. I’m fortunate to have a “bigger shovel” (as Dave Ramsey would say) to use to dig. And I’m going to sell everything I can.

I second all the suggestions to look into loan forgiveness, loan payment deferment or even interest only payments that might be tied to your being in the military – or if you have any other public service work (not sure if your salary comes just from military work or other work). These were available before the financial stimulus was passed, but they have been enhanced recently.

If you have any opportunities to acquire specialized skills – and bump up your salary as a result – look into them. this is a longer term effort but can provide long-term and growing benefits. Ideas: learning a foreign language (e.g., Farsi if you are deployed), picking up computer skills, etc.

While you had mentioned the difficulty in getting another job due to your military commitment, maybe, If you have the ability/opportunity, you can take on freelance work or temp assignments. If you can make high quality crafts, you can sell them on Etsy. If you know how to play an instrument, perhaps you can teach. You could write, design websites or consult from most any location. Alternatively, you could look through your stuff to see if any is worth selling. If you have the time, you can look for diamonds in the rough to re-sell on eBay. Even books, CDs and DVDs can be packaged up and re-sold. These additional activities may not bring in a lot – but even an additional $100 payment every month can help the balance on student loans go down.

What everyone else said about checking out Income-Based Repayment. That said, J.D., I think you’re wrong to steer her away from consolidation. If she can consolidate the loans and get the same or a lower fixed rate, it doesn’t matter how long the term is – if they’re federal loans, there is never a penalty for prepayment. So get the lower payment now while you work to increase your income over the next couple of years, then start throwing extra payments at the principal, when you’re able. I consolidated my loans to a Graduated payment plan (which means payments start out low, interest-only, and increase over time), but I plan to pay them off well before the loan term expires. The equivalent would be getting a 30-year mortgage but paying it off like it’s a 15-year. You give yourself the flexibility to increase payments as you’re able, but if you need cash, you can just pay the minimum for a few months.

I have never commented on a post at GetRichSlowly before, but this seemed an appropriate time. I am in a situation very similar — my student loan debt is eating up almost half my income each month.

I have just applied for a loan consolidation, available through recent legislation, that will reduce my monthly payments by 2/3. Income based repayment allows the borrower to pay based on their income — something it seems like on the surface you’d qualify for. The legislation is new, and hard to understand at times. There’s a great website that helps to explain all the steps: http://www.equaljusticeworks.org/resources/student-debt-relief/income-based-repayment. I used their information to go through the process. Note that it will take months before your payments are reduced, if you’re approved.

I just went through a direct student loan consolidation through the US Department of Education. I had both subsidized and unsubsidized loans, one was a variable rate of 2.48 percent and the other was fixed at 6.8 percent. I was able to lock in a fixed apr of 3.625 percent for the life of the loan. Rather than having a $507 student loan payment every month, it got knocked down to $250.

Sure if I use their repayment schedule I’ll pay over $27,000 in interest over the 20 years of the loan, but I plan to use my debt snowball (once my car is paid off) on this loan and have it knocked out in less than 5 years.

Consolidation can be a life saver if you have the diligence to make sure to throw as much extra money at it when you can. However, if you don’t have the discipline to make getting out of debt a priority, then I would stick with the 10 year loan repayment plan.

Also, depending on your state, city- in the near future- there will be the opportunity to volunteer for student loan repayment credit. There is an active program like this in Chicago now http://www.sponsorchange.org/.

As someone with $200k (went to expensive law school)in Student Loans, I think I am qualified as a master on this topic:

You really need more information. Are these loans federal (and fixed) or private (and variable)? If they are variable, extend those things out on a 30 year plan if you can. Interest rates are at an all time low. As interest rates rise, she is going to be paying more and more each month to student loans. She needs to be building up some savings and making smaller payments now on the loans. Once she has a cushion, then she can contribute extra and pay down the principal.

Recently I started looking into this issue more in-depth. I understood back in 2008 that if you make 120 on-time payments under a qualifying student loan plan, and work for the government during that time, after ten years your balance will be forgiven. I consolidated and got myself on the Standard repayment plan (which is the required plan)… but apparently I missed the part where you have to be on a ten year repayment schedule to qualify, which would almost triple my current payments (and is totally out of the question with my current budget). I don’t understand what good a ten year forgiveness is when your loans are scheduled to be payed off in ten years, maybe it’s different for military but I’d be wary of that.

That said, taking the 30 year repayment plan lowers minimum payment (you can always double or triple up if it fits your budget) but it means if something unexpected comes up, you may not have to choose between student loans and fixing whatever needs fixed, especially on an already tight budget. Plus, for me, consolidating locked my interest rate in lower than the interest rates for each of my loans individually, so that’s definitely worth looking into. And as others have said, income-based repayment is certainly an option… they have plans which allow you to pay lesser amounts now and greater amounts later as your income presumably progresses. There are plenty of options, you just have to be able to accept sacrifices of one area (say, more in interest paid over the long term) over benefits during that time (for example, establishing an emergency fund being possible with lower monthly payments).

The whole question would depend upon who issued the loans, ie what type of loans you have.

I have roughly 40,000 in student loans through the Fed Gov. I have a fixed intrest rate of 3.65, and they give you a discount of 1% for paying on time, so it has been 2.65% for the last 5 years of so. I pay around $150 a month, the lowest possible amount. I could pay more but I have no desire to… Student loan interest is deductable on taxes every year… If I die before it gets paid off it is erased. So I will be paying this 150 for 20 years but I don’t see the point in paying it back so quickly with a 2.65% rate and when I can deduct it from my taxes every year. I call it my “good” debt. Some may not agree but oh well.

I’m just curious…where are people getting low interest rates on consolidation loans? mine is 7.5%!

The new formula for federal consolidation loans (private consolidation loans cannot cover federal education loans now) is the average interest rate of your federal loans. The interest rate is set, obviously by the feds. They were changed in 2006 to the following:
Grad PLUS loan 8.5%
Stafford loans 6.5%…

meaning that all students graduating with federal loans will consolidate with an interest rate of around 7.5%.

It is a total racket and needs real reform.

Personally, i believe student loans are going to be the next mortgage crisis. with the unemployment rate skyrocketing, people will not be able to make their payments…

“I got my degree … but that in the end cost me $55,000. After taxes, I only make $1280 a month.”

We really need to stop telling our children that any college degree at any price is a good investment. I know so many people whose parents kept telling them “you have to get your degree” or “just get your degree, it’ll open so many doors” who ended up with a very expensive but not particularly useful piece of paper.

I know this advice won’t help Megan, but it might help a lot of people avoid Megan’s situation in the future.

I want to give a word of caution about the graduated payment programs. My husband chose one of these when he graduated college because he “would be making more money when it adjusted”. What ended up happening was for many years he was BARELY covering the interest accruing on the loan and when it adjusted it went to 3x the payment. I am not sure about others but in 3-4 years of working he did not triple his income.

If you have to do any sort of graduated plan do one based on your income, not on some hope that you will magically make a ton more in a couple years.

This is becoming a tutorial on how to get out of one’s moral obligations. When you get a loan, you give your word you will pay it off. To talk about loan forgiveness is just plain offensive. And, I’m wondering what the current students are thinking about this – it would seem it would encourage them to get more loans, knowing that they, too, could shirk their responsibilities.

I’d like to see a follow up article about finding a way to get through college without being in debt up to your eyeballs.

There is a company, UPromise which used to be solely for saving for college fund for kids but now they have added an option where you can use the money you eran to pay off student loans. It’s like a rewards program on things you alreay buy. You don’t need to use the credit card they offer, you can just tie your debit and credit cards to your purchases and your student loans. http://www.upromise.com/welcome/how-it-works

1. Forgiveness is likely out of the question. Student loans are notoriously difficult to get out from under and any lack of payment comes with very steep penalties.
2. If time permits, look at taking graduate courses at a state school. This will allow for deferral of payments, and can buy time to hopefully get a new job/additional income.
3. If you own a home with equity, consider a refi and using some of the cash to pay down the loan. The interest on a home loan is tax deductible, so you can replace non-deductible interest (i.e., student loan) with deductible interest.
4. If the loan is a through the federal government, simply ask for a deferral during these hard times. Interest will be capitalized but that may be okay.

@Karen – Loan forgiveness is not about “shirking responsibility”. It is about someone taking a job that so few people want, often putting their lives on hold (even in danger) to do so. Usually these jobs are lower paying then others and so this is extra compensation.

I’m not sure what service she’s in, but since she says her (base) pay after taxes is $1280 I must assume she’s no higher than an E-3 and has less than 2 years in the service. Her housing costs are probably completely covered by her BAH or she’s in the dorms or on base where there are no housing (or utility) costs to her. She can also probably eat at the dining hall on base which means that (even though it probably gets old) she eats for may be ~$10/day. This should leave ~$343 for everything else. Her taxable income is either $1447.20 (E-1), $1622.10 (E-2), or 1705.80 (E-3) (from http://www.dfas.mil/militarypay/militarypaytables/2010WebPayTable34.pdf). Meaning her annual taxable income is at most $20469.60. After you take out her student loan payments her total taxable income is at most $12825.60. Basically she’s probably going to get all her tax contributions back at the beginning of next year. That’ll be a windfall of $2006.40 – $5109.60. If it’s the latter case, there’s her yearly Roth contribution right there. It’s probably not the best to assume that she’ll get all her taxes back, but with that huge student loan and the standard deduction her taxable income is reaching way below minimum income. Getting a second job in this case probably wouldn’t be worse, but it might bump her up to the point where she’s getting taxed.

I’m not sure what to say at this point, she’s only got ~$343 to deal with everything beyond the basic necessities. If there are things she wants to buy I’d suggest may be doing some odd-jobs or finding people that need the skills you need on a short-term basis. A second job doesn’t have to be part-time work at McDonalds. She has a college degree and I’m willing to bet it’s going unused as an E-1 to E-3. I bet the skills and knowledge she obtained from that degree would be well used outside the military. The internet is a place to connect with people that need her skills, but there’s probably someone in her neighborhood that needs help or knows someone that does. Whenever you do a project for someone, let them know that your primary job takes precedence. If you tell them you’re in the military people will usually understand.

As a parting point remember if you do seek to make money outside of the military you need to let your supervisor know and (like everything in the military) you need to fill out some paperwork. Don’t let that be roadblock, the paperwork is worth the extra cash, especially in you situation.

This isn’t really accurate in the same way most people mean. In the military, her room & board & food are paid for separately from her base salary. What this really means is that she has $1280 a month discretionary income. I think that 50% of your discretionary income is a reasonable payment for someone just starting out in life. My advice would be to keep up the payments as long as you’re able, and look for ways to make money on the side. With a degree she’ll likely be an officer soon, and her pay will go up.

@ Shawn, I agree. There are an awful lot of difficult, unpleasant, and sometimes dangerous jobs being handled by government employees who don’t get paid well. Loan forgiveness is like public pension funds and subsidized health care, a benefit offered to make up a decent compensation to these people so that they aren’t tempted to unionize.

I think the US should forgive 100% of education expenses (no matter who holds the loans) for any public employee with more than ten years’ service. We need these people to be well trained, thoughtful, and smart.

I’ve been reading GRS since the start of 2010, first time commenting though. This article strikes a chord with me because student loans are my current debt target.

Your military job probably puts you in a unique situation. But without knowing anything about it, I’m going to suggest you seriously consider consolidating if you have federal loans. You can keep paying them off as aggressively as you are now (if it’s sustainable) but with a lower minimum obligation you have the option to redirect your money elsewhere, should your priorities or obligations change. And as for the psychology side, it sure feels good to pay more than the minimum!

Some lenders offer a rate reduction if you sign up for autopay, or are consistently on-time for a long period of repayment.

I went with a graduated plan when I consolidated. I was only paying interest on the first 2 years; I paid towards the principal as well, but was grateful for that lower minimum if I had a month where money was tied up in something else (e.g. security deposit on my first apartment). I’m five years into repayment now; I may end up paying more interest in the long run, but I will never regret the breathing room that has allowed me to contribute to retirement, an emergency fund, and as of last year a mortgage.

But right now, I’m itching to pay off the rest of my own student loan ASAP.

First off, you don’t have to consolidate to extend your loan payment period, you can extend the period without consolidating. I recently graduated from Law School with $100,000 in debt. They encourage you to consolidate, but as another commenter noted, this averages your interest rates across multiple loans. If you’re like me, you have several loans that are at different rates and consolidating negates the added benefit of paying off high-interest loans first.

For instance, I have 2 loans at 7% interest, 1 at 6.5% and 1 at 2.5. If I consolidate, I will be paying the full amount at like 6.8% interest. To me, I rather keep them separate and pay extra, directing the extra payment to the specific loans that have higher interest rates. This will cost you less in the long run. The benefit of consolidating is that you have one payment, but who cares if you automate your payments. What difference does it make if there are 1 automated payment or 4? None.

Instead choose a longer repayment period and when you can pay the original amount, if you have an extra expense, then pay the amount you owe. I have mine on 30 year repayment but pay the amount that I would pay for 10 year every month anyway. That way, I’m not forced to pay that amount if something comes up, but I’m still on track to pay it back in 10 years. It just gives you more flexibility.

@63 Tyler – my sentiments exactly. The advice to all others considering an expensive degree is to look local first – many community/city colleges offer transfers after two years to larger public universities. The first two years are relatively cheap and the in-state public costs of the final two years are cheaper than out-of-state or private alternatives. Unless, of course, you can afford the expensive stuff to begin with. I, for one, can vouch for the fact that the right degree from a public university can provide a wonderful yield over the course of one’s first 10 years out of school.

For Megan’s benefit, as a military member she has access to military financial counselors, who can be wonderfully helpful and can provide custom-tailored advice for her situation at no cost, and who can likely pinpoint what benefits she can receive under the GI Bill or other military-only alternatives.

At that salary level, I have to assume Megan is junior enlisted – so I wonder if she is considering applying for Officer’s candidacy, since she has a degree already. She could also consider volunteering for not only deployment, but for an overseas tour for a few years. There are numerous tax-free allowances tacked on to overseas travel, whether in a war zone or not.

As a side benefit, it’ll also provide her an excellent opportunity to see the world at a fraction of the cost of a tourist.

The choices she made don’t exactly make sense (going to an expensive private school then enlisting) But as JD points out our decisions with money are more emotional, especially when young huh? I am wondering if she is in the reserves not enlisted ? Either way I would use my GI Bill money (there is one especially for reserves) or use the military tuition assistance program (which for enlisted) to get a practical, goal oriented Masters degree and defer the student loan for a bit. Then use that degree to get a public service job, a job that pays more, or an officer position promotion if you want to stay enlisted. Then you should be able to pay those loans off. The “good” thing about student loan payments is you get a pretty good break on your income taxes for paying on them. It is sad but my friends and I have started to say that a BA is the “New High School Diploma” you are almost better of with skills and no degree/ no debt. But I am sure the expirience of college when your younger is pretty priceless– I look back on mine fondly.

I’m in the same boat as people like Adam and Tiff (over $150K in FFEL loans; 6.8% to 8.5% interest)

Pretty much feels like you’re drowning everyday. I’ve looked at all kinds of ways to attack them. Here are some suggestions:

(1) Finaid is great
(2) Ibrinfo is great
(3) If you have any 8.5% loans, consolidate them to get an automatic .25% rate reduction through a loophole
(4) Defer all your subsidized stafford loans for as long as possible with your current lender (you get three years max), then consolidate with Direct Loans, (you get a new three years); use the extra money to pay off your higher interest or non-subsidized loans
(5) work in public service and get forgiveness after 10 years

For those commenters who are appalled at the thought of forgiveness after 10 years – – don’t forget, there are people who want to provide their expertise in the non-profit/public service sector, which enhances all of our lives. The cost of higher education at $150K should not be a bar to those people.

If you choose to do income based repayment you also have to consider if you plan on working in that field for ten years. In my line of work, data analysis, most people start at the government/state level and work their way into private industries where the pay doubles.

Geez people – student loan forgiveness is not about shirking obligations or getting out of one’s responsibilities! It’s basically a job benefit that “vests” after X years of service to encourage talented people to fill low-paying but highly needed positions. The military, some teachers unions, AmeriCorps, the NIH, etc offer this BENEFIT to qualified individuals as part of their employment package. It’s about as ‘shameful’ as accepting a 401K match and it doesn’t cost the federal student loan program a dime.

@72 chacha1 who said “I think the US should forgive 100% of education expenses (no matter who holds the loans) for any public employee with more than ten years’ service. We need these people to be well trained, thoughtful, and smart.”

As a public employee with more than 10 years experience myself, I couldn’t disagree more with this statement. We already have numerous benefits and incentives not found in the private sector, including for obtaining higher education at low costs in many cases. But creating an extra burden on the backs of taxpayers for the benefit of public servants with this type of plan is ludicrous.

Economic growth in the US is generally provided by the private sector anyway. So while I’m very proud of the service I provide as a public employee and recognize its impact on the stakeholders I represent, I also readily acknowledge that public service is not the end-all-be-all that some of my counterparts tend to think it is.

All that said, I fully support this idea for the military, as their service to our nation is one of true sacrifice – where lives can often be at stake.

3.If you own a home with equity, consider a refi and using some of the cash to pay down the loan. The interest on a home loan is tax deductible, so you can replace non-deductible interest (i.e., student loan) with deductible interest.
4. If the loan is a through the federal government, simply ask for a deferral during these hard times. Interest will be capitalized but that may be okay.

WHAT?? #3 above is just patently false, student loans are above the line deduction whereas mortgage interest is only useful if it is over the standard deduction.
#4 I disagree, if you can pay it, pay it. Do look into surveys and other little things like selling on half.com for your textbooks to put money away for retirement but if you stay in the military you’ll have a pension, health insurance and your income will go up. Just hang in there.

@ Joann,
Perhaps I am misunderstanding you, but I don’t think your information about the loan forgiveness portion is correct. Please look at this again. if you have to make 120 payments on time, but also must be on a 10-year loan payback plan, then in 10 years, you would have fully paid back your loans, and the loan forgiveness plan is moot. The loan forgiveness plan is only for certain jobs with low pay that service the public, but the point for them is that if do this type work for ten years and make timely payments for 10 years, the remaining debt is forgiven (not the entire debt).

Here is one thing that I didn’t see mentioned in the article…
You can claim an exemption on your tax return for student loan interest. My accountant has always advised me to keep paying on my student loans because I’ll always be able to deduct the interest. That said, I do try to pay extra to the principal on a monthly basis. You would be surprised what a difference just $10-$20 would make over the course of a year!
I’m going to assume Megan does not own a home, either.
I did consolidate my loans. I’m in the unfortunate position of having been downsized for at least 1 year, 3 times in the 10 years since I graduated. But, when I consolidated, I was able to get my Stafford loans down to 4.5%. My private loans average 8.9%, so I’m concentrating on paying those down first.
Another way to save a little bit is to sign up for automatic deductions from your checking account, which saves 1/4%, which is just pennies on a payment of over $600, but it’s still a savings!
If you shop online, sign up with Upromise, where you can make your purchases and earn cash back that goes to pay down your student loans. I use this for my gas purchases and dining out… the same things you already do now, but I’m carving back out some funds to pay my loans down.
Hope this is helpful!

That’s exactly my point. I looked just last week at this issue, because I’ve been operating for the last 2 years under the assumption that making my base payments while working in public service will end in forgiveness of my remaining balance at the end of 10 years (I’m in slightly more debt than Megan but I have three degrees to show for it). As a result I only had incentive to make the minimum payment (I pay slightly more only because I like even numbers, just a touch OCD).

It turns out my standard monthly payment is a little bit more than 1/3 of what I must pay to qualify for forgiveness… I would have to pay $600 MORE PER MONTH to qualify (they show the chart on my account, what I have paid per month and what I would have to pay to qualify), and guess what balance that leaves me at the end of ten years? Yep, zero. Nothing to forgive.

Megan, I understand 100% where you’re coming from. I was in the same boat for a little over 2 years before having to change what I was doing. I graduated in 2007 with about $40k in student loans, if I remember correctly (may have been $45k, I can’t remember without digging back through my files). There were 5 or 6 loans total, some federal and some private. My monthly payments were about $550. I was only making $25k annually at the time (gross!) so this was killing me. I did it for two years and started to evaluate my options.

The key was accepting that I would have to extend the loan term beyond 10 years. I understand I may still be able to payoff the loans in 10 years or less, but to get the monthly payment into a manageable range for me, I had to change the time horizon for payoff, if that makes sense.

I consolidated all of the loans into a Wells Fargo Private Consolidation Loan, whihc now has a balance of about $32k. (Wells Fargo wasn’t a good choice, I would recommend another lender, but that’s a different story for a different day). My payments are now $271 per month. The one downside is that interest is variable, but I can handle that on one loan (two of my loans before were variable interest). Having one payment is much easier to deal with now, and it’s a lower amount, by nearly $300/month.

I did have to extend the term to 25 years, but I expect that my income will increase over the next few years (I’m making a little under $40k annually now). As it increases, I’ll contribute more and more to paying off the student loans.

But in summary, I just wanted to say I totally get where you’re coming from. But I encourage you to look at this realistically. Obviously, the $600+ monthly payment bothers you. The only way to fix that is by extending the term of the loan. Ten years is a long time to be putting 1/2 of your income towards debt payments. And that is assuming this is your only debt.

I struggled with my student loans for years. Oh, the cruelty of thinking you’re going to school to increase your earning potential only to graduate and find yourself making $20,000/year or less.

I set myself up on income-based payments. At first, the estimated payoff date was in the distant future – I think I would have been in my 70s before they were paid off, but the payments were manageable for me and allowed me to stay on track.

As my income increased, so did my payments and my pay off date started looking a little better. Eventually, I got a new job with a high enough income that I was able to quadruple my monthly payments and pay off the balance in less than a year – I was 25 when I graduated college and 35 when I paid off my loans. Just hitting the 10-year goal Megan set for herself.

It’s hard to imagine that you’ll be making more money eventually when you’re in your early twenties and struggling to make ends meet, but as you gather experience, build confidence and settle into a career, it really does happen.

Here’s a link to a site that talks about the public service forgiveness option. It looks like it you would have to get through 10 years of payments. If that’s your current plan you might look into whether you could consol to a 30-year and then get forgiveness after 10 years. This would essentially reduce your liability by the amount saved each month for the 10 years. Also, I’m not sure if the consol will reset the 10-year as I’m not in the military and haven’t looked into this. I would spend a little time on this if I were you – call your servicer and ask them. They may be helpful.

I would recommend thinking about the purpose of taking out the loan it the first place. Consider that the interest you pay is in exchange for the benefit of spreading the cost out over time. The more you spread it out, the more convenient it is, and the more you pay for that convenience.

So consolidate/refinance and bring those monthly payments down. Yes you’ll pay more in interest, but perhaps its a fair trade. Don’t forget you’re getting something for that interest: more time and a more forgiving monthly budget.

I keep my federal loans and my private loans at the absolute minimum payment (which includes interest and principal), and have them automatically debited from my checking account so I get the best rate. I keep a separate emergency fund just for a year or so of loan payments, so I wouldn’t have to defer even if I lost my job. This is mostly for sanity and to keep my credit in good shape (i.e., everything is on auto-pilot)

When I graduated, I consolidated my federal loans because I was able to lock in a very favorable fixed rate (mid 2%) — there was no benefit to me consolidating my private loans. I restructured the terms of my consolidated federal loan so that I was on the 30 year payment plan instead of the 10 year payment plan (that was not a new consolidation, just picking a different payment plan). I use the money I would have spent toward the federal loans and apply them toward the private loans, which have higher interest rates.

On top of my minimum monthly payments, I try to pay off about 6-10K in principal of my student loans every year (e.g., with lump sum payments toward the private loans). When you are talking about a lot of debt (over 100K), it’s not always possible to knock it out quickly.

The most important thing to me about paying off my loans is having a defined plan, and not getting stressed out. If I continue to follow my plan, I will knock out the private loans in the next 5-6 years. Not as worried about the federal loans, because around 2% fixed is not a bad rate at all. And I still have that student loan emergency fund that I could use for a year or more.

Debt is never good, but I think sometimes people do not appreciate that liquidity and other financial priorities are also important — not just debt elimination.

The way my loans are set-up, the loans recalculate every time I make a payment toward the principal beyond the minimum payment. When I first started, my minimum loan payments were about $1350 per month, but now they are down to $520 per month. When I knock out the private loans, they will be down to $240 per month. That is really a huge improvement in cash flow.

Separately, I think that massive student loans are going to be a huge issue for our country in the next 5-25 years. With one generation strapped with underfunded retirements and exploding medical costs, and another generation strapped with massive non-dischargeable student loans, it’s going to be ugly. With the government strapped for cash as well, where is all the money going to come from?

Since she’s in the military and her basic needs (food, housing, clothing) are covered, her “after tax income” is what the rest of us call “fun money” in our budgets. I’d LOVE to have over $600 fun money in the monthly budget, even after paying debt.

Also, her income will most likely increase at a fairly steady rate over the next few years. You have to be a real loser to NOT pick up rank up to at least E4. After that, it gets a little more competitive at each level, but it still do-able. If she is going to be commissioned as an officer her income will jump as well.

A.J., without getting too in-depth, I was told that the loan was still eligible for in-school forbearance. When I went back to school recently to get my second B.S. degree, I called Wells Fargo and had the loan put in forebearance – I knew additional interest would accrue, but I didn’t want the burden of making payments while in college again.

It turns out that is not correct. Wells Fargo Private Consolidation Loans are not eligible for any kind of forebearance or deferment. After a couple of months of not making payments because I had written notice from Wells Fargo that my loan was in forebearance for the next six months, I started getting calls and collection notices stating I was two months behind on payments. I called WF to discuss, and found that the information I had been given in the past was wrong.

When I faxed the letter I had from WF to the WF rep as proof that my loan was put in forebearance, she insisted it was a mistake and that WF was not responsible for the mistake – basically, that mistakes happen. I spoke to several people at Wells Fargo over teh course of 6 hours and got no resolution. I caught up the payments and vowed to never do business with this company again. The arrogance coming from an institution that my tax dollars helped to bail out was just astounding.

As soon as my loan balance is under $25k, my plan is to get a LendingClub.com 60-month loan and finish paying off this debt. But I will never, *EVER* do business with Wells Fargo or Wachovia ever again.

I’m gettnig pretty mad recalling the situation so before I lose it and start lambasting WF with horrible language, I’ll sign off. :D

P.S. And I briefly considered suing Wells Fargo for court fees and the balance of my loan. After all, I had written notice from Wells Fargo on which they were reneging. Several friends discouraged me from this, though, so I let it go. In hindsight, I somewhat regret that I did not take them to court.

it is obvious that there are a TON of student loan questions out there and I wanted to offer my knowledge as a resource. I am CEO of a company called iGrad (iGrad.com) and we are a resource for recent college graduates trying to tackle debt and make wise financial decisions. I am considered an expert in student loans and have appeared on CNN, in the Wall St. Journal, USA Today etc. just to name a few, all about student loans and finances. If youhave a particular question, please don’t hesitate to email me or go to iGrad.com and press the “Ask iGrad” button on the top right hand part of the site. We will answer your question within 24 hours, often sooner and the site is free.

Student loans are the one thing I see most often ruin your credit when you are young. It is important to pay, and pay on time. I agree that if it is difficult based on your income, try to work with your lender. But, DON’T just stick your head in the sand and hope it will go away. Poor credit will affect you for a long time to come and in a lot of different ways, so protect your credit rating…..

I just want to add my voices to those saying, “Pay it off as quickly as you can!” I was in your situation 11 years ago, and I do not regret a single one of the sacrifices I made in order to pay my student loans off as quickly as possible. Since your income will increase over time, it probably won’t take you the full 10 years to pay off the loans; that means you won’t miss out on much retirement savings at all.
One thing that might help a little is UPromise. It’s a free program that operates like a rewards credit card: every time you make a purchase, you earn money toward your student loan payoff. Even better, your friends and family can sign up and allocate their rewards to you.

I tried to get through most of the comments, and at some point got overwhelmed. But here are the answers to the most common questions…

– I’m currently an E3 in the USAF, I’ve only been in for 14 months which is part of why my pay is low.

– I live on base (in the dorms), eat at the cafeteria, walk to work, don’t have cable or internet etc to keep my expenses down

– I have both private and federal loans. The private ones are the problems because any extra payment goes towards interest and not the principle. Which makes me feel like it’s somewhat pointless, and it’s my fault for not reading the fine print when I signed up.

– I plan on commissioning (i.e. becoming an officer) but at the moment the AF is too big and so they aren’t taking anyone so it will be a few years.

I was well aware that going into the military enlisted was going to cause financial issues for me, but since I can make payments it was not enough of a reason for me not to do it. I like my job and serving my country. I’m not complaining, I’m just asking for some advice that I can’t find anywhere else

See comment 51, some of them will likely be eligible for forgiveness in 10 years so check out which ones and those, extend to a longer payment plan while you keep the others on a 10 year schedule… get more info from the lenders! Good luck!

I am a graduate advisor at a major university, and it is my understanding that in order to defer her loans she would have to be enrolled in a graduate degree program. Just taking classes won’t affect her payments.

Accelerate the payments on the smallest loan first and get it paid off asap. Then take the money you were setting aside in your budget for that payment and apply it to the next largest loan. It’s like a debt snowball for your student loans and really worked for us.

I am assuming you already know or are in the Dept of Defense Student Loan Repayment Program.

ALL student loan interest is tax deductible on your federal taxes!

I imagine interest rates for consolidating would be much lower than when you originally got the loans. Can the private ones be paid off in that manner?
The company I consolidated with – gave an immediate check ($500) for consolidating loans totalling over a certian amount, THEN after the first 18 months on time payments the interest rate went down by 1%, AND by signing up for AutoDebit through their system the interest rate was lowered .25%, AND when the balance reaches $600. it will be forgiven.
Student Loan debt is GOOD debt.
But cut yourself a break – consolidate after shopping around, at a lower rate with a company that gives incentives, get a longer payment plan, but pay more than the minimum AND take all the interest off on your taxes! Your education was an investment.

“I have both private and federal loans. The private ones are the problems because any extra payment goes towards interest and not the principle. Which makes me feel like it’s somewhat pointless, and it’s my fault for not reading the fine print when I signed up.”

That bit about extra payments not going to principle is confusing to me.

Is the bank putting extra payments towards next months payment or something? Or are they not allowing early repayment? What exactly does the fine print say. If you send them extra money it should not go to waste. Theres no extra interest for them to apply extra payments towards.

Meg, first of all, thank you for your service to the country. much appreciated.

I know things have changed since I graduated from grad school in 2002, but I was able to consolidate my loans (~50 federal) at 3.25% and make the term 30 years because I had over 60k in loans total (also had ~13 private). I threw everything at the private when I started working and got that paid off quickly, and now I’m not even concerned about the ~200/mo I pay for federal, at 3.25% interest it doesn’t make sense to pay it off early, and if I really start to hate the debt, I still have that option.

I recommend consolidating (if at a lower interest rate) and/or getting a longer term, and check again if there’s a way you can throw extra at the private loans… if not at least save up that extra so that you can pay them off sooner with a lump sum. I know you don’t like the idea of debt, but you can actually get rid of it faster that way as you can put money on the high interest rate loans. Just have to stay disciplined about paying them off when you have a longer term, but if the debt really bugs you, you will.

I also agree with taking a look at your taxes and make sure you don’t miss claiming the interest deduction!

While it might be beneficial to look at somehow lowering your interest rate or shaving a few months off the life of the loans (paying them as soon as you can so you don’t pay as much interest) I do think you need to also look at increasing your income at the same time. Don’t wait for “in the future” to get here. Start now.

Think outside the box, review some of the suggestions made previously and brainstorm some others. Are people willing to pay your to clean their cars of snow in the winter time for $5 or $10? What other needs do you see around you that you could fill? It may take a few different things before you find something that works for you. But even the $5 and $10 jobs add up. Look for something that might give you residual income, no matter how small or large. Once you start actually looking for something, you will start to see so many opportunities.

You mentioned that for the private loans any extra payment goes towards the interest. Does this mean you have a set amount of interest over the life of the loan? If that is the case, once you pay that off then shouldn’t the extra money go towards the principal? I would still look at trying to pay it off ahead of time, just pay off some of the other loans first, whose interest amounts you can effect. Keep rolling the payments once you pay off a loan; just put that amount towards the next loan.

I don’t think there is any wave-the-magic-wand-and-make-them-disappear solutions. No matter what it is going to take discipline and time on your part. The fact that you are thinking about them is a good first step. Good luck.

Your student loan should be deferred for 3 yrs without interest while in the military.
Put in for an officer program and dramatically increase your pay. With a college degree you should have never been enlisted making so little money. It is criminal that your recruiter tried to meet a quota and did not send you off as an officer.

I agree with jim (#102). That bit about extra payments applying towards interest, not principal, makes no sense. It is my understanding that all student loans, both federal and private, carry NO prepayment penalties.

Sorry if this has already been posted – I got a little tired reading the duplicated posts myself.

The bit of advice I have (and I know through personal experience) is to ask if consolidating would impact any loan forgiveness later on.

I actually only took out my loans (all federal) because I knew I was going into public service would pay so little, that I could never afford to repay the loans. I took my loan counsellors advice and consolidated my student loans to lower payments and make payment more convenient while looking for the work I really wanted to do – and hopefully the work that would afford me loan forgiveness.

I quickly got a great job teaching special education to some of the lowest income students in the country and I have been doing it happily for 10 years. All of my loans would have been forgiven – if I had NOT consolidated. Since I did, I was not eligible any more. And since there have been many times I have had to forebear and defer the loans (unexpected life problems, and the income problem I expected) I have repaid many thousands of dollars – and I am only half done paying them.

I haven’t read all of the comments.
Most of your income is discretionary.
This is the time to pay off your loan- go for it! Five years you will be free of the loan and the military- with job experience and debt free. Once you pay the interest on the private loans- they have to let you pay principal- or maybe roll the private loans into one that CAN be paid early.
My son in law is just finishing with the Marines (tomorrow). They don’t have any debt left and are starting new! He found what you found -military wise- the services are not as anxious about OBC right now. Seems slimming down is the word of the day. Hopefully, the recession will be almost over when you get out.
Better yet, stay in for twenty and get a retirement income at the ripe old age of 43!

BTW- having a second job is pretty difficult in most military fields these days. They work hard to provide you with all you need and do not like that second job thing (at least in my daughter’s AF experience).

After reading all the comments, my recommendation is to apply to graduate school and use the GI bill or Federal Tuition Assistance to cover the expense. Get it online or through one of the base education centers. A lot of reputable institutions are online now and not only will you have your loans deferred, but you will probably become an officer by the time you earn your graduate degree putting you at a higher income bracket As an added benefit you will be further ahead of your peers. Being a Military officer is a competitive career track.

There is a simple way to reduce your student loans as provided by the government, if your student loans are all government based, such as gradplus or basic government subsidized loans. If you consolidate all your loans to one lender, you can then apply for income based repayment (IBR). This should lower your payments from about 600 down to 300 or less. Once you have received IBR repayment, you can re-apply to the government for income contingent repayment (ICR). ICR repayment basically takes what you make, and has you repay a small percentage of it. For example, I currently have nearly the same loan debt as you, but I make 40k a year at my current job. ICR requires me to pay 170 bucks a month based on my current income and the fact I am married. A lot of people are afraid to use the government programs because they elongate the debt, but the current ICR plan is nice because it deletes all existing debt after 25 years. So even if you only pay 150 bucks a month for 25 years, all the rest of the debt is forgiven.

I never post to these things, but for those of you who are confused about the difficulty of pre-paying student loans: there are some loans where if you make early payments, the money goes towards your next payment, not towards principal. If this is the kind of loan she has, prepaying won’t save her any money–it will pay off the loan faster, but not in any way that saves her interest. So there’s no prepayment penalty, but there’s no huge prepayment advantage, either (except in getting rid of the loan that much sooner).

I should add that sometimes it IS possible to prepay principal on these loans; it just requires sending the payments to a different address (often they make this address very difficult to find).

I too (along with Chett @ 5k5k) wonder about the GI Bill. I worked as a VA coordinator many years ago helping service people access their education benefits.

You don’t mention what branch of the service you are in; check with your Education Services Office and see if any portion of your loan can be paid through your service. Also, if you are on active duty, this may qualify you for a deferment, also. Check it out! AND THANK YOU FOR YOUR SERVICE!

My wife and I will have about 80k in student loans (2 undergrad degrees from a private institution and 1 masters). We were able to get all our loans as federal loans so that they were eligible for IBR and we’re going to be working for non-profits our entire lives. We’ll probably only have to pay back half of the 80 over the course of 10 years and we’ll be free of it all :)

The deferral is going to require to go full-time in graduate school and graduate school is not cheap, so really, that’s not an option.

You can get a hardship deferral, but since you have a job, probably not going to happen, either.

Depending on the loan type, SallieMae will consolidate the federal loans and the rates are ridiculously low right now.

Depending on how the interest accrues, you might be able to get around the extra payment thing. My student loan bill is $75 a month, with extra payments going to interest. I make four payments==2×19 and 2×50 and I make them every 2 weeks. The first payment is 19. The next day, an automatic payment of 50 goes to the principal. Two weeks later, another 19 and the next day, 50. I’m paying 138 with 38 going to interest and 100 to principal. When I was making the 138 in one payment, I was only paying something like 90 in principal and 48 in interest.

Either way, spreading the payments out may let you get around the going towards interest thing.

First, #107 above says “deferral is going to require to go full-time in graduate school” and this is not right, in my experience. That has not been the case with my federal student loans. Also, someone earlier in the comments said they thought you had to be enrolled in a course as part of a degree program, not just any course, to qualify for deferral. That is also not correct.

Actually, you can defer federal student loans (Perkins and Stafford) if you are enrolled in a college class for credit, at an accredited college or university, at least half time. I have done it, and it is also clearly stated on the US Department of Education’s website, and all over the internet. The classes can be at the graduate or undergraduate level. In some cases, taking a single class is considered half time enrollment. This is determined by the system the college uses to determine half time status. With a Federal Perkins loan from the time period you are talking about (2004-2008) you would also get a 6 month grace period after each deferment period ends in which the loan does not collect interest. In my experience, there is not a limit on these grace periods for Perkins loans the way there is for Stafford loans.

Megan, you should also try checking with your private loan lender to see if there’s anything you can do to reduce your interest rate, even a little. Someone else mentioned this above. One common promotion is that they may reduce the rate by 0.5% if you make a certain number of consecutive on-time payments online and agree to online billing.

For the Federal loans (Perkins and any SUBSIDIZED Stafford that you have) the loans won’t collect interest if the loan is in deferral (which you could sign up in the future for based on active military duty or half-time enrollment in a college courses). I know that doesn’t help you now, but it’s something to keep in mind for the future. From my personal experience, I can tell you that getting the interest deferred on the federal loans (meaning no interest accrues during the deferral period) can really improve your situation — if you can use that time to pay down the principle. If you can do that for any of your loans, now or in the future, this could make things a lot better for you. Since you can’t pay down the principle on your private loan (according to your earlier comment), this might be one option for paying off the any Federal loans you have left after the military knocks off the $10,000, if you are ever in school at least half-time or on active military duty in the future.

Also, the truth is that student loans are very complex. There are many kinds, and the terms of each kinds can be very different depending on when the loan was originated. Because of that, many people — even some financial aid professionals and students with loans themselves — do not fully understand all the details that will apply to YOUR loans. There have also been a lot of changes to the federal loan system recently, especially with the College Cost Reduction and Access Act in 2007. Just keep in mind when you read people’s advice that some of it could be outdated or based on incorrect assumptions.

I personally have been given a ton of incorrect information about my own student loans, from loan companies, the financial aid office at my college, etc. I guess this is not really the most upbeat comment, but my best advice is don’t take other people’s word for things regarding student loan repayment. I have been told incorrect things more often than I have been told correct things. It is very confusing territory. Best of luck to you figuring this out!

I feel for you Megan! When my wife and I first got married 5 years ago, combined we had ~$900 in student loan payments per month, eating a substantial source of our income.
I have to agree w/ JD–it takes discipline to avoid “lifestyle inflation” and keep snowballing your debt. We’re about halfway done paying student loans by following Dave Ramsey’s technique in the “Total Money Makeover”.

I graduated with $45K in student loans in 1998, and currently have $35K left, but I followed the suggestions most people made in the comments.

–I deferred my loans as long as humanly possible, attending school half-time for 6 years to get my master’s degree.

–I consolidated at 2.8% interest rate a few years ago for $28K of my loan (to the person asking about this — it depends on the current market whether you get a low interest rate).

While these choices allowed me to live my life with little or no worries about the cost of my education, 12 years later I’m only down $10K and I haven’t progressed in my career like I should have because I spent my time in school avoiding loan payments.

Two of my friends graduated with similar debt; both lived “poor” in their early 20s while everyone else did, and both are finished with their student loans. Now I am actively paying off my loans, but it takes nearly half my monthly salary to do it.

My advice is: suck it up, hunker down, pay extra on the loans you can pay extra on, and with a bit of luck you’ll be out of debt sooner than you think. Remember, even if you consolidate later on, if your balance is lower, you’ll have less to pay in interest.

Megan is certainly on the right track. She has her priorities in check, by making sure that she has enough money left over for the cost of daily living after she pays her monthly student loan payment. My advice would be to pay it off as quickly as possible, even if it means having even less “fun spending” money. Being in the military does make it tough to do odd jobs on the side, so it really comes down to budgeting your money well and paying off as much of the debt as you can as soon as you can.

Even though “standard” extra payments are sometimes applied to interest, many times you can literally send in a check and write “apply only to principal” on the memo. And put it with a cover letter saying something like that:

“I am sending an extra check for $500. This is in addition to my monthly payment. It is to be applied to principal only. Do not apply it to interest.”

First off – thank you for your service!
second – it really looks like you’re on the right track for getting the loans paid off. I have to agree with teh others who recommend the hunker down and just get through it. If you can get used to the payment – and increase the payments when you get pay increases – when the loan is paid off – you funnel that money toward your retirement (remember – military comes with certain perks – one of which being a pension so you’re retirement goals needent be as aggresive as someone in the private sector). As for the interest/principal repayment deal. Most likely extra payments go toward future payments instead of principal by default. You should however be able to specify that the extra goes towards principle. They of course don’t want you to know that and so they explain it like it’s impossible. It’s at lest worth a shot to try it.

I know a little too much about student loan debt. I was in the same boat as Megan, minus the military, and then I went to grad school. Yikes.

I actually put a guest blog post on the PerkStreet blog recently that was personally helpful to me and to a few friends who’ve also been struggling with even starting to get a handle on it. It sounds like Megan might have some paths she can take through her military benefits already, but maybe these tips can be helpful to other readers?

I worked in student loans for nearly ten years, at both a lender and a school, and many of these comments and suggestions are full of inaccuracies. Please do not rely on comments here to make decisions without consulting your lender.

The loan forgiveness programs are extremely confusing and have very specific requirements- and frankly, I don’t think they will benefit very many people. Merely working in public service for ten years does NOT guarantee forgiveness- too many students are borrowing loans on that expectation.

The bottom line is, student loan lenders aren’t always the bad guys. Colleges/universities charge outrageous tuition, and too many students borrow money to pay for their luxury items. Just because you can borrow the money, doesn’t mean you should.

Wow, my sympathies to everyone struggling with student loans. The more I read, the more I feel grateful I went to Uni here in the UK (started the year before fees were introduced), worked through all holidays, and only ended up with about Â£1500 in loans which I paid off within a couple of years of graduating even though I didn’t need to (UK graduates don’t pay until their salary hits a certain Â£ value).

In Megan’s case, if she consolidated her loans, and still rapidly paid them off in 10 years (no discipline required, just automate the payments!), she would save a lot of money by paying less in interest, while still having them paid off sooner than later.

For me, it locked in an interest rate of 4.5% (this was 2006, for undergrad), a rate I’m praising Jesus for now. My dad recommended it and I’m really grateful I took his advice, even though at the time I didn’t really know what I was doing.

The lower monthly payments enabled me to afford them straight out of college and later grad school while also handling my car payments and another (grad) student loan. I did a sort of debt snowball without knowing the term…I paid off my car using any means necessary, increasing as my income increased, then paid off my small grad school loan in hefty chunks.

The lower payments also helped me survive a recent move and a low-paying temp job until I could get hired and make a decent income. No late payments.

Now I have an emergency fund built up and I’m concentrating on throwing all my extra money at this one remaining loan. I REALLY don’t make that much money and since I live in a city, my rent is quite high, but I’m still finding I can almost double my minimum payment now that I’m not so anxious to put away money for a disaster. Assuming my income increases even minimally over the next few years I think I can get the sucker done in about 6 more years. I HAVE had to postpone the idea of a house, but that’s okay, I’m young and I do like the freedom of renting.

So, honestly, if you’re the type of person who can’t rest until her debt is settled (as I turned out to be, to my surprise) then consolidation could be just what you need. It turned out to be perfect for me and even with the downsides (I had to repay immediately out of college, and when I went to grad school 4 months later and got a forbearance the interest capitalized) I am REALLY happy I did it.

My husband has massive students, both government and private. It’s practically crippled our financial situation. So much of our money has to go to the minimum payments, that we racked up massive credit card debt, and now we live with a friend because we couldn’t afford our own place on our salaries (I have a good paying job, my husband’s job pays barely anything) minus all the minimum payments.

I think if you can afford the monthly payments, then yes, do the shorter term loan to get it over and done with. However, for us, since we could never afford the payments on our salaries if his loans were 10-year, we keep the term of the loan stretched our for as long as we can to keep the monthly payments as low as we can, so we can afford stuff like groceries and to pay off our credit card debt, which has a MUCH higher interest than his student loans.

You CANNOT benefit from loan forgiveness unless you are on a loan-contingent plan. If you consolidate to a 30-year plan and make your regular payments for 10-years, you will NOT be eligible for public service loan forgiveness. You MUST make a minimum payment of the standard payment UNLESS you are on an income-based or income-contingent plan. No payment below the 10-year Standard Repayment Plan payment will be a qualified payment. If you want to take advantage of the public service loan forgiveness you must stick with the 10-year plan and go with the income-based or income-contingent plan because that is the only possible way that you can still have debt after 10 years and be eligible to have it forgiven.

However, there are a few things to consider with Direct Loans. You can get a 1.5% interest rebate if you make all of your payments online. You can get an addition .25% rebate if you set up automatic payments. If a significant portion of your debt is from before 2006, you may be able to pay back your loans at a sub-3% rate after consolidation. In this case you might lose money by going with a 30-year term, but the interest rate might be low enough that having a large, liquid emergency fund or higher-yield savings might be worth it. Strongly consider consolidation and a 30-year repayment plan even if it might cost you a little bit of money in the long run, but if you manage your investments properly, it won’t. Just remember if you’re going to get that student loan payment reduced, take all of those savings and pay yourself first.

The recent legislation that provides for student loan forgiveness is for those in PUBLIC SERVICE. As in serving the public. I can’t speak for all professions, but in mine, leaving my position to work for the government would result in a significant pay decrease. I saw a job posting just yesterday that I actually would love to do, but would result in a nearly $20,000 pay cut. The government set up this program to get people who couldn’t otherwise afford it doing necessary work such as teaching. They WANT “deadbeats” to “shirk” their responsibilities.

College costs a lot of money, as does graduate and professional school. Who’s going to teach your kids or provide legal assistance to low-income abuse victims if the people qualified to do so can’t afford it because their student debt is too high? Go after the high cost of education, not the people taking smart advantage of legal programs allowing them to work AND deal with educational debt.

You may want to consider a private student loan consolidation with a company like http://www.cedaredlending.com. I was able to lower my monthly payments, lower my interest rate and only extended the life of my loan by a few years.

Many State and local governments failed for years to make the payments that they were required to make to their government employees’ pension funds. Instead of raising taxes or reducing spending, the money was “borrowed” by the governments from the pension funds and used for other purchases that often stimulated the State and local economies, just as a lower student loan burden would now stimulate the economy. Although there is no claim that the government employees did anything wrong or did not pay as much as 10% of every dollar they earned to their pension funds, these employees are now having their promised pensions reduced and benefits curtailed sharply. Why not just do the same thing with student loans? Just tell those to whom the student loans are owed and who kept their side of the bargain, that they will be getting far less than they expected and that they will just have to accept the reduced total payments. It worked for pension debts so why won’t it work for student loans?

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